The UK, German and Australian competition regulators released a joint statement on 20 April 2021 seeking to highlight the need for “rigorous and effective” merger control as the first line of defence to prevent concentrated markets. The UK’s Competition Market Authority (CMA), the Australian Competition and Consumer Commission (ACCC) and Germany’s Bundeskartellamt joint statement “is made in the face of high levels of concentration across various markets in the UK, Australia and Germany and a marked increase in the number of merger reviews involving dynamic and fast-paced markets”.
The regulators believe that “there is a real need for strong merger enforcement from competition agencies globally to ensure that high concentration levels do not become the accepted norm, and to maintain and promote competition for the benefit of consumers”. This joint statement is consistent with the views expressed by each of the regulators on previous occasions and comes at a time where there are significant challenges for competition regulators in preventing certain mergers, especially those in digital markets.
We provide our insights as to the rationale in each regulator engaging in this public statement of concern and approach.
Insights from the United Kingdom
From a UK perspective, the joint statement comes at a time when the CMA is taking on a more important role in global merger control – the UK aspects of the largest global mergers now fall for the CMA to review whereas they tended to be reviewed by the European Commission under the “one-stop” EU regime prior to the end of the Brexit transition period (which ended on 31 December 2020). The joint statement could be seen as a further sign of the CMA raising its profile in the post-Brexit world, and also reflects the increasingly joint approach of global authorities.
The message encouraging robust merger control also comes during a period when the CMA is already developing a reputation as an increasingly aggressive merger control authority, having blocked more transactions over the past year – four – than in any previous year, in addition to parties abandoning five deals the CMA referred for an in-depth (Phase 2) review during this period. In comparison, since the start of 2018, the European Commission has prohibited only three transactions in total, with another five deals abandoned by the parties at Phase 2.
The CMA has recently adapted its criteria for a merger party to qualify as an exiting or failing firm (moving from a three limb test to a two limb test), but consistent with the joint statement the threshold to meet this test remains high. The CMA has also faced some recent criticism in how it has applied this test during the COVID-19 pandemic – in one case provisionally accepting that the exiting firm criteria were met before reversing this decision and instead clearing the merger on the basis there was not a competition concern in any event.
The joint statement indicates a general scepticism over merging parties’ submissions and emphasises the importance of third party evidence to confirm these submissions. Recently, the CMA had to reconsider its approach to evidence in JD Sports/Footasylum when the UK Competition Appeal Tribunal (CAT) remitted the case back to the CMA to reconsider after finding that the CMA’s counterfactual in prohibiting the merger was flawed – where its conclusions on the likely effects of COVID-19 (which were materially important) were not based on the necessary evidence. Specifically, the CMA had failed to make follow-up inquiries with suppliers after the introduction of social distancing and the closure of non-essential retail stores, and had failed to make direct inquiries of Footasylum’s primary lender. The joint statement makes the point that competition agencies cannot base assessments on speculation or unfounded claims as to the impact of the pandemic – but the CAT’s ruling in JD Sports/Footasylum shows that such claims should not merely be dismissed without collecting relevant evidence.
Acquisitions of small start-ups and challenges posed by digital mergers are also highlighted in the joint statement. The CMA is perhaps better placed than many authorities in this regard – its flexible “share of supply” test (capturing deals where the parties’ activities overlap and they have a combined share of supply of 25 per cent or more with an increment) allows the CMA to take jurisdiction over transactions that often fall below purely turnover-based thresholds in other jurisdictions. The CMA has also recently refreshed its substantive merger guidance to better reflect its approach to digital mergers. In addition, proposals for a new regulatory regime for platforms with “Strategic Market Status” include a new mandatory merger control regime for such firms (whereas filings are voluntary under the UK’s general merger control regime, with the CMA also able to call in non-notified transactions for review).
Insights from Germany
From a German perspective, the joint statement reiterates a couple of positions clearly expressed by the Bundeskartellamt on several previous occasions:
- stringent and consistent merger control enforcement is key and indispensable to preserve competition and diversity;
- the significant increase of the German merger control filing thresholds brought about by the latest amendment to the German Act against Restraints of Competition (ARC) in January 2021, should not be misunderstood as a general relaxation of merger control enforcement in Germany; au contraire, the expected reduction of the overall number of filings will allow the Bundeskartellamt to focus its resources to a greater extent on mergers that raise complex competition issues;
- this in particular applies to the strong market concentrations in the digital economy where the Bundeskartellamt will be able to make use of new tools it received following the recent changes made to the ARC to avoid tipping markets or the creation of ecosystems, potentially incontestable for competitors;
- the tougher pace will be accompanied by a greater use of the presumption of harm also in merger control proceedings, shifting the burden onto the notifying companies to prove the effects of their merger are not anticompetitive;
- due to the increasing complexity of dynamic markets and the need to undertake forward-looking assessments structural remedies remain the clear preference over behavioural remedies;
- voices calling for more permissive enforcement, e.g. in response of the European Commission’s decision to block the proposed Siemens / Alstom merger in 2019, do not find favor with the Bundeskartellamt; and
- the pandemic does not and will not serve as an excuse to relax merger reviews, including the application of the failing firm defence.
The President of the Bundeskartellamt highlights the logic behind its approach as follows: “If we do not rigorously apply merger control and prohibit anti-competitive mergers, the post-merger road that we subsequently have to take [namely abuse proceedings] is a very difficult one”.
Insights from Australia
The ACCC has been vocal in its views on concentrated markets, its concerns about the market power held by digital platforms and the need for legislative change in Australia. The ACCC’s chairman verbally expressed in the webinar releasing the joint statement that we “can’t continue with a bias to clear mergers”. The concern, reiterated in the release of the joint statement, and expressed by the ACCC before, is that the interests of companies and consumers do not align where there is market power. Concentrated markets result in less competitive tension and give rise to potentially more coordinated effects, reducing competition and ultimately increasing prices and reducing choice for consumers.
The ACCC’s Digital Platforms Inquiry Final Report in June 2019 (DPI Report) highlighted the competition challenges and concerns in digital markets and proffered amendments to the merger law to address the inadequacies the ACCC considers exist in Australian law. These proposals seek to address the concern that future or potential competition for the market is being eliminated and the current legislative test requires a substantial lessening of competition to occur in a market. The proposed amendments also call out technology and data as being assets that should be subject to a different notification and threshold for competitive harm. The joint statement is another public statement reinforcing the ACCC’s view that merger control is the first line of defence against concentrated markets or the entrenchment of market power, and will form part of its arguments for changes to the current test.
As noted with respect to the CMA, the share of market threshold applicable in Australia has its benefits by indicating to merger parties the ACCC’s expectations around notification where market shares are in excess of 20 percent. However, the challenge for the ACCC is operating under a non-mandatory notification regime, which was evident most recently when Google completed its acquisition of Fitbit prior to the ACCC finalising its review. The ACCC had rejected behavioural remedies proposed by Google to address competition concerns, but given the nature of the clearance regime, there was no statutory requirement for the ACCC to finalise its review before Google could act. This matter is now the subject of investigation for enforcement.
The ACCC Chairman has indicated that suggested changes to the Australian regime will be put forward mid-year. In his address to the Law Council of Australia in 2019, the deficiencies in the current regime were highlighted. This came at a time where the ACCC had recently lost in two merger cases in the Federal Court of Australia – Pacific National/Aurizon and Vodafone/TPG – and continued the ACCC’s 20 year losing streak in challenging mergers in court. The ACCC indicated that it was considering whether the current merger regime is “fit for purpose either in law, or, in practice”, and it was “firming in [its] view that change is needed”.
Australia has been fortunate to not have suffered the same restrictions and resulting business failures as many other countries during COVID-19. However, the ACCC has been consistent in its views that mergers at this time will be subject to the same process and that markets must be protected for the benefit of consumers in a post COVID-19 world.
Not surprising, but quite interesting, is the joint international format to attract attention, and the context chosen to deliver these messages. Weakening merger control is not a solution in times of crisis but will pave the way for potential new problems: higher market concentration and less competition – which might stay in place forever. The statement sends a clear signal to merger parties, particularly those with market power or in concentrated markets, that these regulators will seek to protect markets prior to competition being lost. Notwithstanding that each jurisdiction has an abuse of dominance or misuse of market power prohibition to fall back on should, post-merger, conduct adversely affect competition, the process is lengthy and competitive harm may have already occurred. The joint statement highlights that these regulators will use merger review as the first line of defence to ensure that consumers are not harmed through concentrated markets or a position of market power.
The clear message in the joint statement is that “uncertainty should not be a reason for clearing a merger when economic principles point to the potential harm to competition and consumers. Otherwise there is a risk that merger control instead skews towards merger clearance. This would not be a good outcome for consumers or the economy…”.
The joint statement can be read in full here: Joint statement on merger control enforcement